Risk and Return

discuss how your firm uses risk and return methods in financial decision making. Your firm may not use techniques like expected rate of return or standard deviation, but will have some criteria established. You might want to discuss this with the firm accountants.

It’s supposed to be all in excel, not word. and no presentation is need.

Introduction:
Risk is an important concept in financial analysis, especially in terms of how it affects security prices and rates of return. The risk and return tradeoff is defined as the principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with low potential returns, whereas high levels of uncertainty (high-risk) are associated with high potential returns. In today’s information technology world, real time financial data are readily available via the Internet. Students and investors now have easy access to on-line databases. Student will be able to demonstrate how to measure a risk and return for a stock and for a portfolio over time.

THE RISK AND RETURN CALCULATION
Students will download the relevant stock prices for two companies from the Internet and perform risk and return calculation for the selected companies. Since the concept risk and return tradeoff is as much an art as it is a science, students must combine the selected stocks in a portfolio and then calculate the portfolio’s risk and return.
The purpose of this case study is to provide students with the opportunity to:
1. retrieve real time financial data via the Web;
2. Calculate the risk and return of selected stocks;
3. Construct a portfolio
4. Calculate the portfolio’s risk and return.
5. Practice technology, both in calculating the returns and risks (through excel processing) and in presentation (through giving some chart in order to explain the variance, the tendency of two stocks to move together…)

Students are instructed to follow the path shown below to retrieve the risk and return for the selected company via DSM.
• Go to Qatar stock exchange website: www.qe.com.qa
• From the menu, click on market statistics then Trading reports
• Choose the 2014 and 2013 daily trading reports and hit submit, and then download the closing prices. (you need the data for 2 years: 2013-2014)
Technical Information:
Each student will perform the risk and return calculation based upon the following concepts:
• Compute daily, or weekly or monthly returns for the two stocks and the portfolio. The weights to invest in stock 1 is .4 and the remainder is to be invested in B.
• Asset and portfolio’s expected return and variance using historical data.
• The correlation and the covariance in returns between the two stocks
Finally based on the investors’ attitude toward the risk-return tradeoff, the student will justify which asset Does he/she prefer? Student must submit an excel file.